Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1967-68 to 1972-73 - Assessee company incurred development expenditure for designing and perfecting models in connection with execution of some manufacturing contracts - It also incurred expenditure for obtaining consultancy services from various organizations with regard to improving manufacturing process and formulating incentive schemes, for obtaining suggestions with regard to structural changes in organisation to make system effective and also consultancy advice to improve quality of products - Whether expenditure incurred by assessee was not for acquiring asset of enduring nature, therefore, it was revenue expenditure and as such allowable - Held, yes FACTS The assessee had incurred development expenditure for the relevant assessment years for designing and perfecting models so that it might be able to carry out the manufacturing contracts it had entered into with its customers. The assessee had also incurred expenditure with regard to the consultancy services it had obtained from 'NPC' 'ASC' and 'EMFC' for obtaining advice for improving the manufacturing process in its various units, for obtaining advice on measures towards installation and development of an integrated operational control system based on accumulation, collation and analysis of basic operation date to be utilised for planning and control in the areas of production, materials, costing and strategic decision-making for suggesting structural changes in the organization to make the system effective and for obtaining advice to improve the quality of some of its products and to gear up the manufacture of higher grade castings. The assessee claimed these items of expenditure as revenue expenditure deductible under section 37 during the relevant years. The ITO rejected the claim and held the expenditure to be capital expenditure and, therefore, not deductible. In the appeals preferred by the assessee against that decision, the AAC and Tribunal agreed with the contention of the assessee and held the expenditure to be revenue expenditure. On reference : HELD The amounts which were expended by the…

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